The €2.98 billion scheme would promote green energy by offering government grants until 2028 to new district heating networks run on at least 75% renewable energy and waste heat, or to projects decarbonising existing networks.

The commission said the scheme complied with EU rules that require state aid to be “necessary and appropriate”, since without it new district heating facilities would likely be based on polluting fossil fuels, or such investments may not happen at all due to their high investment needs and low revenues.

“With this measure, Germany will be able to increase the share of renewable energy and waste heat in the heating sector, thereby considerably decreasing its emissions,” EU competition policy chief Margrethe Vestager said in a statement.

The German scheme is expected to support the installation of 681MW of renewable heat generation capacity per year, and will cover up to 40% of the eligible investment costs of projects.